Executive summary

The European Union (EU) has agreed on new rules to simplify value added tax (VAT) compliance obligations for e-commerce in goods to support the digital economy by accelerating growth for online businesses, in particular start-ups and small and medium enterprises.

The changes will progressively come into force by 2021. Key measures include a single point of VAT registration for online sales, removal of the current exemption from VAT for imports of small consignments worth not more than €22 from outside the EU, and simplified rules for businesses with cross-border sales of less than €100,000. In addition, large online marketplaces will be responsible for ensuring VAT is collected on sales on their platforms.

Detailed discussion

At the meeting of EU Finance Ministers (ECOFIN) held on 5 December 2017, the Member States agreed on new measures for VAT compliance which seek to reduce the heavy compliance burdens currently faced by small companies operating online. The measures include:

• New rules allowing companies that sell goods online to take care of all their VAT obligations in the EU through a digital online portal (One Stop Shop), hosted by their own tax administration and in their own language. These rules already exist for online sellers of electronic services (e-services) under the mini one-stop shop (MOSS) system.
• Establishing a new portal for distance sales from third countries with a value below €150.
• For the first time, large online marketplaces will be responsible for ensuring VAT is collected on sales on their platforms that are made by companies in non-EU countries to EU consumers. This includes sales of goods that are already being stored by non-EU companies in warehouses (so-called fulfilment centers) within the EU which can often be used to sell goods fraudulently VAT free to consumers in the EU.
• To support start-ups and micro-businesses, the introduction of a yearly VAT threshold of €10,000 below which cross-border sales to other countries within the EU are treated as domestic sales for online companies, with VAT paid to their own tax administrations. This goes hand-in-hand with other initiatives such as single invoicing rules. The aim is to make trading in the single market as similar as possible to trading at home for these companies. In addition, companies selling cross-border with less than €100,000 cross-border sales will benefit from simplified rules.
• The removal of the current exemption from VAT for imports of small consignments worth not more than €22 from outside the EU, which leads to unfair competition and distortion for EU companies.

These measures are expected to greatly reduce costs for small businesses and to increase VAT revenues collected from e-commerce.

The European Commission says that businesses currently operating outside of the MOSS have to pay an average of €8,000 a year to each Member State that they supply. An extension of the MOSS system could reduce regulatory costs for firms by €2.3 billion, while Member States could see their VAT receipts rise by more than €7 billion annually.

The new rules will progressively come into force by 2021 and aim to ensure that VAT is paid in the Member State of the final consumer, leading to a fairer distribution of tax revenues among EU Member States. They will help to cement a new approach to VAT collection in the EU, already in place for sales of e-services, and fulfil a core commitment of the Digital Single Market (DSM) strategy for Europe. The agreement also marks another step towards a definitive solution for a single EU VAT area, as set out in the Commission's recent proposals for EU VAT reform.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young Belastingadviseurs LLP, Amsterdam

• Gijsbert Bulk, Global Director – Indirect Tax
  gijsbert.bulk@nl.ey.com

Ernst & Young LLP (United Kingdom), London

• Kevin MacAuley, EMEIA
  kmacauley@uk.ey.com

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ATTACHMENT

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